The entry of cryptocurrencies into the real-time payments market is a big concern for the Consumer Financial Protection Bureau, its director said.
Discussing a broader look at Big Tech’s push into financial services, CFPB Director Rohit Chopra said the agency will be “strongly” focused on adopting cryptocurrencies for payments. in real time, noting that large online companies could push the widespread adoption of the technology.
Which very clearly suggests that the CFPB thinks the crypto has the potential to become a big competitor to the growing number of real-time rails, including FedWire and The Clearing House’s RTP product in the US, TARGET2 in Europe, and CHAPS. Sterling in the UK.
It also suggests that he sees cryptocurrencies – and especially unstable ones – as a bigger threat to not just real-time payments, but payments in general, than many others in the world. outside of the digital asset industry.
Chopra also highlighted concerns such as Apple’s shift to the buy now, pay later (BNPL) space, narrative the Financial Times that the CFPB would look closely at the “implications of Big Tech entering this space”, including whether Apple Pay Later could “reduce competition and innovation in the marketplace”.
Why not Crypto?
Technologically, crypto has the ability to become a contender. While bitcoin’s 10-minute “block time” between adding new transactions and 60-minute finality is one of its biggest Achilles’ heels when it comes to payments — real-time or otherwise — from Many other newer blockchains — notably, so-called “Ethereum killers,” including Algorand, Cardano, Cosmos, and Solana — are fast enough to be near if not effectively real-time.
The problem with crypto versions of RTP, Chopra said in a July 27 Reuters interview, is the risk of hacking, errors and fraud. While he didn’t go beyond that, there are some basic reasons for concern, all of which come down to two facts about the blockchain technology that cryptocurrencies are built on.
First, transactions cannot be undone. The only way to get a refund is for the recipient to initiate a separate transaction. There is no middleman like a bank or card processor with the power to universally reverse a payment.
Second, crypto transactions are “pseudonymous” – meaning that even though transaction details are visible on a publicly accessible blockchain, the people behind those transactions can maintain their anonymity.
As well as being another obstacle to refunds, chargebacks and the like, it leads to know-your-customer (KYC) and anti-money laundering (AML) issues.
Major technological advances in banking
Discussing his concerns about the potential impact of crypto on real-time payments, Chopra pointed to the failure of Facebook’s Libra/Diem project, which would have created a stablecoin pegged to a basket of fiat currencies (rather than one, like the dollar or the euro) that were instantly usable by its 2.3 billion users for local and cross-border transactions.
Calling the project, which immediately received widespread opposition from central bankers, regulators and politicians around the world, a “wake-up call”, Chopra suggested that the use of unstable digital assets for payments in real time could be just as disturbing.
One of the results of Facebook’s stablecoin scare has been the advance of central bank digital currencies (CBDCs) like a digital dollar, which are currently under consideration or in development in over 100 countries. They would likely be built on modern blockchains or very similar technology, and thus enable real-time payments.
While banks have reacted with fear, with groups like the Bank Policy Institute (BPI) saying CBDCs could “undermine the commercial banking system in the United States,” other experts take a more optimistic view.
“Central bank digital currencies throw a lifeline for banks,” said Co-Pierre Georg, South African Reserve Bank Chair in Financial Stability Studies at the University of Cape Town, recently. at PYMNTs. “The banks really have everything upside down. They should be terrified of Big Tech.
An adviser to the Algorand Foundation, a blockchain developer working on several CBDC projects, Georg added that Libra would have been as big a threat to banks as central bankers.
Although Algorand is capable of making real-time payments, it did not see crypto as a big threat in this regard – noting that “existing RTP systems work well”, are inexpensive and reliable and “have no never failed as far as I know”. .”
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